Kate's Comment

Thoughts on British ICT, energy & environment, cloud computing and security from Memset's MD

2012 Budget Response – what the tech sector needs to help UK PLC

First, I am delighted that the chancellor has stated an intent to make the UK Europe’s technology centre. Now that the old “big three” of finance, retail and construction are floundering, technology really has the potential to become a major engine of growth for UK PLC. Cloud computing is a prime example; we already have something like a 10% global share of the market which is growing at over 20% per year and will be worth £25bn by 20151. I see a future where Britain has a triumvirate of export strengths; legal services, financial services and technological services – three areas with great synergies and ones in which we already excel.

Infrastructure for the future, not the past

The promise of investment in faster broadband is very welcome – and necessary to achieve the above goal – but it needs to be more than words. There was mention of £150 million for connected cities but that is insufficient to be of any real use by at least one order of magnitude – we need £billions invested in the infrastructure of the future if we are to become a hub of technological excellence. Not only that but we have the madness of dark fibre tax – business rates being charged on fibre optic ducting as though it were business premisis, which has killed many innovative network startups since they can’t afford to pay for 1 foot by x-hundreds of miles.

By contrast it enrages me that we are spending £40bn on white elephants like the high speed 2 rail link. Using the same metrics as were used to justify that project (mostly time savings), money spent on broadband would deliver £30 of benefit for every £1 spent – 10 times better than the train links return on investment!2 Further, 20-30% of Britons remain without access to broadband and they are generally among the most socio-economically deprived.

In summary, investment in network infrastructure would help the needy, rather than a minority of suits, save us all time (and therefore money) and stimulate innovation by providing British Internet / cloud services companies with a hot-bed of users to hone their products that can then be exported to the world!

Less business tax means more growth & jobs

I of course welcome the reduction in business tax as well, and it too will help high-growth technology companies like mine fulfil their promise of driving economic prosperity. My brother and I (the owner-managers of Memset) leave most of the profits in our business in order to fund our growth – especially necessary given the banks’ continuing reluctance to lend. By taxing those profits we leave in rather than what we take out government was stifling our growth, which in turn reduces the rate at which we take on new staff and so forth.

Fewer startups, more skills please!

As for loans to start new businesses and support for school leavers with apprenticeships, they are targeting the wrong areas! It is the established, proven technology businesses in the 10-250 employee range – the “gazelles” – that have the greatest potential for growth and exports. Due to scarcity of bank finance such firms are turning to venture capitalists who in turn almost always end up selling them to the US, depriving Britain of their goodness (more here). We need more pressure on banks to share at least some of the risk with the owners.

As for apprenticeships, such firms are also in dire need of highly-skilled workers, not school leavers. We have to fight tooth-and-nail to get top-quality programmers and systems administrators which is hampering our ability to grow as fast as we would like (ie. we’d recruit more if we could find them!). It is true that we and our peer-group companies won’t be employing school leavers but encouraging universities to churn out more science and technology graduates will encourage our growth and in turn economic prosperity for all.

I really struggled writing the above so I think I’ll just say it clearly and shoot me down in flames if it is politically incorrect (I’m bad at judging): If government helps my company grow fast it will help everyone, though indirectly in many cases.

No, I won’t employ the low-skilled, less-bright school leavers (our minimum requirement is a fluid intelligence ranking in the top quartile), but my devops superstars command impressive wages, which they in turn spend on luxuries like restaurants, cleaners, taxis and so forth. It all filters down, especially since (in my experience) the geek community, unlike their intellectual-peers who turned to banking, are humble altruistic folk likely to spread the wealth as demonstrated by amazing acts of public good like the open source movement.

Further, you don’t need many entrepreneurs to make a vibrant economy (1% of the population, or 600,000 people would be more than adequate)! I think there is too much focus on entrepreneurship resulting in a nation of all chiefs and no indians. I’m saying we should take a top-down approach: support the new-breed of wealth creators and let the economy do the rest.

Avoiding the brain drain

Finally, on a more personal note, as one of the much vilified “1%” I welcome the cut in top-rate income tax, but not purely for selfish reasons. At 50% it was at a level where my brother and I were genuinely starting to consider the merits of emigrating and taking the company with us. Britain cannot afford to alienate its golden geese for the sake of what is petty change in the grander scheme. 45% brings it just about under the pain threshold.

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